Foundations of Financial Management
16th Edition
ISBN: 9781259277160
Author: Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 8, Problem 19P
Zerox Copying Company plans to borrow
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Zerox Copying Company plans to borrow $174,000. New Jersey National Bank will lend the money at one-half percentage point over the prime rate at the time of 12.50 percent (13 percent total) and requires a compensating balance of 24 percent. The principal in this case will be funds that the firm can effectively use in the business. This loan is for one year. a. What is the effective rate of interest? (Input your answer as a percent rounded to 2 decimal places. Use a 360-day year.)
b. What would the effective rate be if Zerox were required to make four quarterly payments to retire the loan? (Input your answer as a percent rounded to 2 decimal places.)
ABC would like to hire two loan collectors to speed up its collection process. Each of the loan collectors will be given total annual benefits of P150000 per year. The entity earns P30000000 in sales, 10% of which are cash. The entity has a 365-day per year and a minimum required rate of return of 10%. the current average age of receivables is 70 days but with the loan collectors, it is forecasted to decrease to 30 days. How much is the net benefit or cost of this option?
Resty Corporation needs P400,000 additional financing. The company is considering the choice of financing with a bank or a factor. The bank loan carries a 20 percent interest rate on a discount basis with a required compensating balance of 16 percent. The factor charges a 3 percent commission on invoices purchased monthly. The interest rate associated with these invoices is 11 percent with interest deductible in advance. If a factor is used, there will be a monthly savings of P1,500 per month in credit department costs. Further, the expense of an uncollectible account of 2 percent on the factored receivables will not exist. (A) What amount of principal must the company borrow from the bank to receive P400,000 in proceeds? (B) What amount of accounts receivable must be factored to net the firm P400,000?
choose the bullet with the correct answer
(A) P325,000.00 and (B) P265,116.00
(A) P525,000.00 and (B) P465,116.00
(A) P525,000.00 and (B) P265,116.00
(A) P625,000.00 and (B)…
Chapter 8 Solutions
Foundations of Financial Management
Ch. 8 - Under what circumstances would it be advisable to...Ch. 8 - Discuss the relative use of credit between large...Ch. 8 - Prob. 3DQCh. 8 - Prob. 4DQCh. 8 - Prob. 5DQCh. 8 - Prob. 6DQCh. 8 - Prob. 7DQCh. 8 - Prob. 8DQCh. 8 - Prob. 9DQCh. 8 - Prob. 10DQ
Ch. 8 - Prob. 11DQCh. 8 - Prob. 12DQCh. 8 - Compute the cost of not taking the following cash...Ch. 8 - Regis Clothiers can borrow from its bank at 17...Ch. 8 - Simmons Corp. can borrow from its bank at 17...Ch. 8 - Your bank will lend you $4,000 for 45 days at a...Ch. 8 - Prob. 5PCh. 8 - Prob. 6PCh. 8 - Mary Ott is going to borrow $10,400 for 120 days...Ch. 8 - Prob. 8PCh. 8 - Prob. 9PCh. 8 - Prob. 10PCh. 8 - McGriff Dog Food Company normally takes 27 days to...Ch. 8 - Maxim Air Filters Inc. plans to borrow $300,000...Ch. 8 - Digital Access Inc. needs $400,000 in funds for a...Ch. 8 - Carey Company is borrowing $200,000 for one year...Ch. 8 - Randall Corporation plans to borrow $233,000 for...Ch. 8 - Prob. 16PCh. 8 - Your company plans to borrow $13 million for 12...Ch. 8 - If you borrow $5,300 at $400 interest for one...Ch. 8 - Zerox Copying Company plans to borrow $172,000 ....Ch. 8 - Prob. 20PCh. 8 - Mr. Hugh Warner is a very cautious businessman....Ch. 8 - The Reynolds Corporation buys from its suppliers...Ch. 8 - Prob. 23PCh. 8 - Neveready Flashlights Inc. needs $340,000 to take...Ch. 8 - Harper Engine Company needs $631,000 to take a...Ch. 8 - Summit Record Company is negotiating with two...Ch. 8 - Charming Paper Company sells to the 12 accounts...Ch. 8 - The treasurer for Pittsburgh Iron Works wishes to...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- A bank has made a 3-year $10 million dollar loan that pays annual interest of 8%. The principal is due at the end of the third year. A. The bank is willing to sell this loan with recourse at 8.5% discount rate. What should it expect for selling this loan? B. It also has the option of selling this loan without recourse at a discount rate of 8.75%. What should it expect for selling this loan? C. If the bank expects a ½% probability of default on this loan, is it better off selling this loan with or without recourse? It expects to receive no interest payments or principal if the loan is defaulted. D. Why do you think that the interest rate in part A is different from the interest rate in part B?arrow_forwardPlease teach me how to solve this, thanks! ABC would like to hire two loan collectors to speed up its collection process. Each of the loan collectors will be given total annual benefits of P150,000 per year. The entity earns P30,000,000 in sales, 10% of which are cash. The entity has a 365-day year and a minimum required rate of return of 10%. The current average age of receivables is 70 days but with the loan collectors, it is forecasted to decrease by 30 days. How much is the net benefit or (cost) of this option?arrow_forwardAutomotive Accessories needs to borrow $135,000 for 6 months for renovations. It is considering two financing options: Bank Helping Hand offers an 8% annual rate subject to a 10% compensating balance. Bank Friendly Financer offers the funds as a discount loan with an annual rate of 8%. Automotive Accessories maintains no deposit balances in either bank, and repayment will be a single lump sum at maturity. a.What is the effective annual rate of interest on each loan? b.What can Automotive Accessories do to reduce the interest rates on these loans?arrow_forward
- (Related to Checkpoint 18.2) (Estimating the cost of bank credit) Paymaster Enterprises has arranged to finance its seasonal working-capital needs with a short-term bank loan. The loan will carry a rate of 14 percent per annum with interest paid in advance (discounted). In addition, Paymaster must maintain a minimum demand deposit with the bank of 10 percent of the loan balance throughout the term of the loan. If Paymaster plans to borrow $90,000 for a period of 6 months, what is the annualized cost of the bank loan? The annualized cost of the bank loan is %. (Round to two decimal places.)arrow_forwardXXX, Inc. finances tis seasonal working capital need with short-term bank loans. Management plans to borrow $65,000 for a year. The bank has offered the company a 3.5 percent discounted loan with a 1.5 percent origination fee. What are the interest payment and the origination fee requiered by the loan? What is the rate of interest charged by the bank?arrow_forwardFINCORP has two debtors who each make a $10, 000 purchase. Debtor 1 pays their account in 10 days, while debtor 2 pays in 30 days. a) In simple terms, what nominal annual interest rate is debtor 2 incurring for the benefit of delaying payment? Note: base your answer on the following logic. If a borrower pays 3% for a 30-day loan, we could express the nominal annual rate as roughly 36.5% i.e 3% x 365/30 = 36.5% that payment is due within 30 days but debtors will receive a 5 percent discount if they pay within 14 days. I'm quite unsure if that 5% as it is a discount, is handy or the steps to calculate the nominal interest ratearrow_forward
- We charge $2,100 on a credit card with an annual interest rate of 18% and for which the minimum payment is $10 or 2.5% of the balance remaining to be paid, whichever is higher. How long will it take to repay the debt assuming that the minimum payment is always made, and how much will we have paid in total? If we borrow the same $2,100 at the same annual interest rate of 18% but repay it as an amortized loan with a monthly payment of $55, how long will it take to repay the debt, and how much will we have paid in total?.arrow_forwardBank M offers the following terms for a $10 million loan: interest rate: 8 percent for one year on funds borrowed fees: 0.5 percent of the unused balance for the unused term of the loan Bank N offers the following terms FOR A $10 million loan interest rate 6.6 percent for one year on fund borrowed fees: 2 percent origination fee a. Which terms are better if the firm intends to borrow the $10 million for the entire year? b. If the firm plans to use the funds for only three months, which terms are better?arrow_forwardKBL Bank Limited quotes a 21 percent interest rate on one-year loans. So, if you borrow $75,000, the interest for the year will be $15,750. Because you must repay a total of $90,750 in one year, the Bank requires you to pay $7,562.50 per month ($90,750/12) over the next 12 months. a) Is this a 21 percent loan? What rate would legally have to be quoted? What is the effective annual rate?arrow_forward
- Starr Co, has been approved for a $ 100,000 loan commitment from its local bank. The bank has offered the following term =one year, up front fee =75 basis point, back end fee =25 basis points , and rate on the loan =8.00 percent. Starr expects to immediately take down $80,000 and no more during the year unless there is some unforeseen need. What is the total interest and fees Starr can expect to pay this loan commitment?arrow_forwardMr. Fernandez has applied for a revolving credit line of $ 9 million to assist in marketing a new product line. The terms of the loan will be as follows:(a) All the loans will be discount loans.(b) A fixed commitment fee of 0.2 percent will be charged.(c) The compensatory balance requirements will be 8 percent on the total credit line and 6 percent on the outstanding loans.(d) The bank will pay 2 percent interest on demand deposits.(e) The rate of interest to be charged will be the prime rate plus 3 percent.(f) The bank will use the "actual/360" accrual method to compute interest payments.(g) The credit line will be extended for a period of five years.The loan officer estimates that Mr. Fernandez will use about 67 percent of the credit line on average. If the prime rate is 10 percent and the required reserve rate on demand deposits is 16 percent, what is the effective cost to Mr. Fernandez?arrow_forwardSuppose your firm is seeking a three-year, amortizing $400,000 loan with annual payments, and your bank is offering you the choice between a loan of $415,000 with a compensating balance of $15,000 and a loan of $400,000 without a compensating balance. The interest rate on the $400,000 loan is 9.5 percent. How low would the interest rate on the loan with the compensating balance have to be for you to choose it? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Interest rate 8.73 %arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
What Does ROI (Return On Investment) Really Mean?; Author: REtipster;https://www.youtube.com/watch?v=Z6ThJvNr1Dw;License: Standard Youtube License